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Jakarta Post

OJK, IDX to ease SME access to stock market

Small-scale enterprises will soon be able to source funding from the capital market and have their shares traded at the local stock exchange, as the Financial Services Authority (OJK) and the Indonesia Stock Exchange (IDX) are preparing a regulation to allow such firms to go public

Anggi M. Lubis (The Jakarta Post)
Jakarta
Mon, July 27, 2015

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OJK, IDX to ease SME access to stock market

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mall-scale enterprises will soon be able to source funding from the capital market and have their shares traded at the local stock exchange, as the Financial Services Authority (OJK) and the Indonesia Stock Exchange (IDX) are preparing a regulation to allow such firms to go public.

OJK commissioner for stock market Nurhaida said the capital market regulator was working on a regulation that would serve as a legal basis for small and medium enterprises (SMEs) to offer their shares in an initial public offering (IPO).

Nurhaida said the regulator was mulling to create a new board for SMEs to allow their shares to be traded outside the regular market, in which shares from the existing main and development boards were marketed.

'€œThis is our way of helping SMEs get alternative funding from the stock market,'€ Nurhaida told reporters in a recent press briefing.

'€œWe deem it important for these small companies to be traded on their own board because if they have to compete with bigger firms on main and development boards, we fear that their stocks will not be liquid with only a few stocks being floated.'€

She added that the regulator was pessimistic investors in the regular market would be confident in investing in SMEs stocks if they were traded in a regular market, given the companies'€™ small business scale.

Nurhaida said there was no specific target for when the regulation was expected to be ready, only saying that the OJK hoped that it would be able to conclude the studies for the upcoming stipulation soon.

She said the regulator was currently studying the proper mechanism, such as the minimum required assets for potential SMEs that want to go public and how much funds they could raise from floating their shares in the market.

The minimum requirements, she said, would be smaller than for those companies that were listed on the development board, where stocks of medium-scale firms are listed.

According to her, companies listed on the development board were required to have at least Rp 100 billion (US$7.43 million) in total assets and were allowed to raise a minimum Rp 40 billion from their IPOs.

The IDX website states that a firm can be listed on the bourse'€™s development board if it has at least Rp 5 billion in net tangible assets (NTA). A larger firm that aims to have its shares listed on the main board, on the other hand, should have at least Rp 100 billion of NTA.

There are currently around 250 companies listed on the development board out of around 500 listed companies at the country'€™s stock exchange.

To safeguard SME stock trading, Nurhaida said that the new board would be equipped by price makers.

The new regulation is in line with newly appointed IDX president director Tito Sulistio'€™s plan to adopt the US stock exchange NASDAQ'€™s '€œdealers-driven'€ plan, creating a parallel bourse for small-caps and startups, where designated market makers would set the prices for each share, in contrast with the existing bourse where prices are purely defined by supply and demand.

NASDAQ has three different market tiers, including the NASDAQ Capital Market, an equity market for companies that have a relatively small level of market capitalization with less stringent listing requirements than for larger market capitalization.

The program is among Tito'€™s plan to boost market liquidity by adding more products.

The SME board is one out of 15 planned regulations in the OJK'€™s pipeline.

Other regulations include electronic book building to open better access for investors to debuting companies, a plan to increase more state run firms or their subsidiaries to go public and establishing Bond Index as market reference for state bonds.

More rules will cover transaction settlement through the central bank, regional bonds to support infrastructure development as well as stock market products expansion by issuing asset-backed security to fund housing credit.

While most of the regulations were currently under scrutiny, some were expected to come into effect in the fourth quarter, Nurhaida said.

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